The new final rule will become effective on December 1, 2016. The federal Fair Labor and Standards Act, commonly referred to as the FLSA (29 USC § 201 et seq.), establishes the federal minimum wage and a 40-hour workweek with time-and-a-half pay for overtime work for employees.

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This article will cover portions of the Fair Labor Standards Act and give an analysis of what has changed with the U.S. Department of Labor's (DOL) final rule to update the regulations defining and delimiting the exemption for executive, administrative, and professional employees. The final rule was announced on May 18, 2016, and was published in the Federal Register on May 23, 2016.

The new final rule will become effective on December 1, 2016. The federal Fair Labor and Standards Act, commonly referred to as the FLSA (29 USC § 201 et seq.), establishes the federal minimum wage and a 40-hour workweek with time-and-a-half pay for overtime work for employees. Child labor is also regulated under the FLSA.

What Has Changed?

The final rule focuses primarily on updating the salary and compensation levels needed for employees to be exempt. The final rule:

Raises the minimum salary of an exempt employee to $913 per week ($47,476 annually).

Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to a salary of $134,004 annually.

Establishes a mechanism for automatically updating the salary and compensation levels every three years. The next increase would be January 1, 2020.

Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.

What Did Not Change?

The final rule does not make any changes to the "duties tests."

The final rule does not change the Administrator or Teacher Exemption. (These are listed below.)

What Does This Mean for ACSI Member Christian Schools?

Salaries for administrators and teachers who meet the requirements for exemption (below) will not change.

Salaries for other exempt employees will need to be increased to at least $913 per week or:

a. They will need to be paid an overtime premium of one-and-a-half times the employee's regular rate of pay for any overtime hours worked. This allows the employee to continue to receive a salary, but any hours worked over 40 hours in the workweek would have to be paid overtime pay.

b. The school may also reduce the amount of pay to a base salary of at least the minimum wage and add pay to account for the overtime for hours worked over 40 in the workweek.

c. The school may also keep the salary at the same level and eliminate overtime hours. However, if they end up working overtime hours, the school would need to pay them.

Example: The business administrator at the school currently earns $770 per week or $40,000 annually. This person currently works 45 hours per week. Under the final rule, the school would now need to increase this person's salary to $913 per week ($47,476 annually) or move him/her to a nonexempt employee and pay him/her an hourly wage and time and a half for overtime.

Alternatively, the school may reduce the business administrator's pay to $650 and pay him/her time and a half for the five additional hours ($122) equaling the administrator's original pay before the final rule. (He/she still must track overtime hours.)

3. Schools should reevaluate all employees based on the "duties test" below to determine if they are exempt employees. If they do not meet the "duties test," then those employees should be categorized as nonexempt employees and paid an hourly wage for 40 hours and paid time and a half for time worked over 40 hours.

4. Schools should check state laws that may already have a higher standard than required by federal law. In those cases, the school must follow state law!

Exempt and Nonexempt Employees

Under the FLSA, employees are divided into the two broad categories of exempt and nonexempt. Executive, professional, and administrative employees can qualify as exempt employees, meaning that they do not need to be paid overtime for working more than 40 hours in a workweek. They are not "on the clock."

Caution: The Department of Labor looks at duties, not titles, when determining whether individuals are properly classified as exempt from overtime or not. Here is a brief explanation of the "duties test" for each category. These remain unchanged in the final rule. Executive Category To qualify as an executive exempt person, the individual must:

Manage an enterprise, department, or subdivision as a primary duty

Direct the work of at least two full-time employees

Have authority to hire and fire or to make recommendations on hiring and firing

Administrative Category To qualify as an administrative exempt person, the individual must:

Either be responsible for office work directly related to management or general operations or be responsible for work directly related to academic instruction or training at a school

Regularly exercise discretion and individual judgment in matters of significance (as opposed to merely following procedures) and have authority to make important decisions

Regularly assist an owner or an executive or perform work that requires special training or experience under only general supervision

Educational Establishment and Administrative Functions

The administrative exemption is available to those serving in schools whose salary is at least equal to the entrance salary for teachers in the same school and whose primary duty is performing administrative functions directly related to the academic instruction or training in the school. Employees engaged in academic administrative functions include: the superintendent (or other head of an elementary or secondary school system); any assistants responsible for administration of such matters as curriculum, quality and methods of instructing, measuring and testing the learning potential and achievement of students, establishing and maintaining academic and grading standards, and other aspects of the teaching program; and the principal and any vice-principals responsible for the operation of an elementary or secondary school. Having a primary duty of performing administrative functions directly related to academic instruction or training in a school includes, by its very nature, exercising discretion and independent judgment with respect to matters of significance.

Professional Category

To qualify as a professional exempt person, the following must apply to the individual:

The person has knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study or has talent in a recognized field of artistic endeavor.

The work must require the consistent exercise of discretion and judgment in its performance.

The work must be predominantly intellectual and varied in character, not routine physical, mental, manual, or mechanical work.

Teachers in Schools Under the professional category, there is a subcategory for teachers. Surprisingly, it does not require a college degree to qualify for the exemption. Simply teaching in a classroom setting qualifies a person for the exempt classification. Teachers of kindergarten through twelfth grade automatically qualify for the professional exemption category whether or not they earn a minimum salary. A teacher qualifies for the overtime exemption by virtue of the position alone. Also, some state laws do require a minimum salary for teachers.